David Kotok And All His Friends Agree: MEREDITH WHITNEY IS WRONG

David Kotok of Cumberland
Advisors just wrapped up his 5-day retreat at Leen's Lodge in
Grand Lake Stream, Maine. The annual gathering included
around 48 financial market professionals, economists,
traders, academics, and Fed advisors.

Among other things, the participants discussed Meredith Whitney's call for cascading municipal
bankruptcies. And they pulled no punches.

From Kotok's latest commentary (emphasis his):

We entirely disagree with Meredith Whitney, who persists in
predicting that this world of state and local government finance
will end in disaster. We say it won’t. In
Maine, we can point to a concrete example.

Discussion topics in Maine included the tax-free municipal bond
market. In our group we had very skilled municipal bond
professionals and analysts. By the way, they do not masquerade as
bank analysts. We also had several skilled and
knowledgeable bank analysts; they do not masquerade as
municipal bond analysts. In Maine, there were
discussions of both banks and municipal debt.

But this was not to say there would be no municipal defaults.

Let’s be clear. There are some municipal organizations in
trouble. And there are cities in California and elsewhere
that are seeking bankruptcy in order to gain relief from
contracts. And there are states where the pressures
of finance are severe and the states have not yet made the
changes needed to address then. Illinois is an example of a
state that we are currently avoiding.

But our view is that of a tax-free bond investor. Our job
is to deploy a client’s money in the tax-free sector. We do
not own Illinois GO debt. We avoid cities like San
Bernardino, CA. We saw Harrisburg coming years before
it made the headlines. They were dumb enough to build a
politically motivated project, an expensive incinerator that made
no economic sense. Now they have to pay the price of a bad
governmental decision.

In Muniland, the key is to do the homework and avoid the troubled
patches. If you are not satisfied with the credit, don’t go
there. We don’t.

Most recently, Whitney has taken heat for alleged making
municipal bond investment recommendations to clients. She
claims she never did.

However,
CNBC's Gary Kaminsky disagrees. Kaminsky is calling for
CBS's 60 Minutes to release the full transcript of Whitney's
December 2010 interview when she made her controversial calls.